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Why Republican Tax Cuts Are a Problem

JONATHAN ERNST

By The Fiscal Times Staff

May 29, 2018

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The Washington Post’s Jared Bernstein argues that the United States’ main fiscal problem can be boiled down to this: “our tax structure does not collect enough revenue to support the government people need and want.”

Bernstein says that annual federal revenues as a share of GDP are about 2 percentage points ($400 billion) below where they should be at this stage of the economic cycle. He also points to an analysis by Bobby Kogan, a Democratic staffer for the Senate Budget Committee, that found that if the U.S. had kept the Clinton-era tax code while still spending as it did over the last 20 years or so, the country’s debt-to-GDP ratio would be about a third lower than it is today — about 50 percent instead of 77 percent.

Also at the Post, Jennifer Rubin highlights a new report from the Economic Innovation Group that finds that the country’s most prosperous communities are rapidly leaving the rest of the country behind. Rubin:

The majority of GOP officeholders, along with many conservative think-tankers and pundits, continue to cling to 1980s economic policy, however ill-attuned to 21st-century America. They insist that lowering top marginal tax rates on the rich is the key to economic success, forgetting that the top marginal tax rate is already about half of what it was before President Ronald Reagan’s tax cuts (70 percent) and ignoring the huge geographic gaps in wealth and productivity. Cutting top marginal tax rates might give a momentary boost to the economy and help the rich get richer, but it does nothing to address the staggering geographic divide between aging, poorer rural America and richer urban America. Not only do the vast majority of struggling, non-college-educated Americans in rural areas pay little federal income tax (and hence benefit minimally from cuts in federal income tax rates), but they have real needs for which supply-side economic theory has no effective response.